- On February 28, 2017
Is America’s retail sector dying? With the announcement that another big box retail brand will be closing over 100 locations across the country, it certainly looks like the country has fallen out of love with large retail centers.
Per an announcement by JC Penney CEO Marvin Ellison, this past Friday, it was confirmed that the retail giant would be cutting 13-14% of its stores and two distribution centers in 2017. In total, this is an estimated 140 stores from the company’s 1,014 current locations (as of Dec 2016).
After the fallout from strategies to reposition the brand with an everyday low prices strategy cost JC Penny 33% of its sales, it was only a matter of time before the company decided to cut underperforming assets to stabilize operating margins.
This trend of closures for big box retailers is on the rise, even claiming the largest department store brand, Macy’s, which added 68 stores to the chopping block as of January 2017. Other larger retail brands following this trend 2017 store closings include K-Mart which will close 78 locations and Sears which will close 26 of its stores the entirety of which are scheduled to go dark by the end of the second quarter.
Amid the rise of internet retailers like Amazon, there seems to be no way for many of these former anchors to compete. This point was driven even further when Walmart went so far as to close 269 locations in 2016 to purchase Amazon rival Jet.com. The purchase of Jet.com went through at $3 billion and showed the world that even Walmart, the king of big box retail, was feeling the pressure.
So to answer the question of whether or not retail in the U.S. is dead the answer is a resounding: Probably not. While the transition of many shoppers to online retailers has caused a significant drop in sales, there are many retailers who have used marketing strategies and proper positioning of assets to ensure success.
Many of these store closures are based in markets where the economy could not support the pricing of popular brands, or the demographics of the area changed dropping the availability of expendable income. In these cases, the only option maybe to redevelop or reposition the asset.
When redeveloping any large asset, the priority should be to work with your local government. Government officials do not like vacant properties any more than property owners. The blight which vacant properties can bring and the impact to the tax base are all reasons for local officials to work with you even going so far as to provide incentives to redevelop the site.
There is also the option to cure vacancy by repositioning the asset with a new tenant. There are tenants out there who aim to take over anchor spaces which have previously gone dark due to the savings on time and funds required to open a new space. Companies like Dick’s Sporting Goods, Bed Bath & Beyond, and Burlington Coat Factory are famous for this strategy.
There is also an opportunity for competitors of these large box tenants to move in. Although brands with extensive portfolios are suffering from the recent drop in sales, brands like Nordstrom, Dillards, and TJ Maxx, are reporting higher sales. If there is evidence in the market analysis that the population’s spending habits will support that location, you bet they will take the opportunity to fill a space.
If a larger retail tenant cannot be brought in, then there is also the option to redevelop the property by splitting the space into multiple units which can then be marketed to smaller or non-traditional tenants.
To be successful in commercial real estate, above all, you have to be adaptable. So when faced with the loss of a big box retail tenant, market analysis needs to be your first step. By knowing the needs of the community, you are more likely to find a replacement for the loss of income created by these “ghostboxes.”